Global Perspectives

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

For a country steeped in its customs, India's government and central bank have taken a liking to the element of surprise. The policy announcements have been far from pleasant, causing people degrees of consternation and short-term economic pain. But to their credit the authorities in New Delhi appear willing to run political, albeit calculated, risks for longer-term economic gain.

Rather than cut and run, foreign investors should take a closer look at what the government of Prime Minister Narendra Modi is doing. If populism appears to be on the march in the U.S. and Europe, its current expression in India appears quite pragmatic. And not just on the fiscal front.

For a second consecutive meeting, the Reserve Bank of India Wednesday defied market consensus for a cut in its benchmark repurchase rate of 6.25%, even as inflation dropped sharply in response to the "demonetization" shock of early November. That's when the government announced the sudden cancellation of 86% of the currency in circulation in a bid to reduce the country's outsized black market economy and the corruption that it engenders. The finance ministry in its annual Economic Survey, which was released January 31, 2017, estimated the economic hit from the replacement of India's two-largest denomination bills at 0.25% to 0.5%, slowing growth to 6.5% in the current fiscal year ending March 31. But for 2018 fiscal year, which starts April 1, 2017, the survey pegs growth at 6.8% to 7.5%. That would mark the fastest rate of any large economy in the world.

Inflation in December of 2016 was 3.4%, comfortably below the 4% mid-point in the central bank's target range. Certainly the disinflation and the dip in growth influenced widespread expectations for a cut in the benchmark rate. But the central bank, which unexpectedly shifted its monetary stance to "neutral" from "accommodative," is also taking into account a drop in bank lending rates following the flood of deposits of old bank notes as part of the demonetization program. The RBI, as the bank is known, is also factoring in the marked rise in commodities prices, particularly food and energy, and their expected impact on inflation in the second half of this calendar year.

That backdrop plays into yet another batch of smaller surprises built into the 2018 Union Budget, which was released a month ahead of schedule on February 1, 2017. If government budgets reflect executive branch priorities, Modi and Finance Minister Arun Jaitley are trying to strike a balance between populist, albeit quality, spending, and continued fiscal consolidation. The budget for the fiscal year starting April 1, 2017, pencils in a deficit of 3.2%, slightly under consensus expectations of 3.3%, and lower than the current fiscal year's 3.5% gap. Jaitley reiterated that government remains committed to a medium-term budget deficit of 3%, and a government debt-to-GDP ratio of 60% by 2023 from nearly 69% in fiscal year 2016.

Despite the surge in commodities prices, the budget's allocation to subsidies as a percentage of GDP will decline about a tenth of a point to 1.6%, the lowest level in nearly a decade. It's the mix, though, that appears politically savvy, with a rise in food subsidies offset by a drop in fuel subsidies in a country that imports nearly four-fifths of its oil. The level of support for fertilizer expenses remains unchanged, which is important in a country where the rural population accounts for about two-thirds of all people and the agriculture sector still represents roughly 17% of GDP, according to the World Bank.

Indeed, while the budget included cuts in income taxes on small businesses and the middle class (and a 10% surcharge on those earning more than INR 5 million), it increased agricultural and infrastructure spending, including affordable housing, to record levels. In all, total spending is projected to increase 6.6%, while revenue is forecast to rise 6.5%, thanks to a 13% jump in tax collections driven to a considerable extent by the demonetization program: India's tax department reckons the number of Indians filing tax returns to double this year to 75 million.

As part of its war on "black money," the department has also just launched "Operation Clean Money" to examine the surge in bank deposits for signs of tax evasion. Unexplained sources of old-bill deposits of more than $3,000 are to be slapped with a 50% tax. But tax inspectors are reportedly overwhelmed with work, as deposits surpassing that amount were made into 11 million bank accounts ahead of the December 30, 2016, deadline.

Alongside the budget's focus on rural development, Modi is promoting his demonetization and anti-corruption campaign to bolster his Bharatiya Janata Party's prospects in crucial state elections this year, particularly in the key agricultural stronghold of Uttar Pradesh, where voting among its 200 million people will run through March 8, 2017. A strong showing for the BJP there will bolster Modi's chances for reelection in 2019. Responding to the political opposition's criticism of the demonetization program, Modi, February 8, declared that demonetization and the fight against corruption isn't directed at any particular party, but rather is aimed at helping the poor and "empowering the honest."

Perhaps surprisingly, rather than capitalize on the knee-jerk selloff immediately after the November 8, 2016, demonetization announcement, foreign investor equity flows turned negative. But the country's retail investors have been plunking money into domestic equity mutual funds. The net result is positive: the MSCI India Index is up 4.1% in the three months to February 9, 2017. And since the beginning of February 2017, when the budget was introduced, it's gained 2.7%, handily outperforming the 1.8% gain in the broad MSCI EM Index. Modi's populism is so far proving both popular and prudent, at least for local investors looking beyond the recent twists and turns in macro policies.

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Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Stephen Jimenez is a client portfolio manager for Thornburg Investment Management. He focuses on Thornburg’s liquid alternative strategy and serves as a liaison between the investment team and clients.

Prior to joining Thornburg, Stephen was a salesperson at III Capital Management, a $4 billion hedge fund management company focused on rates and credit strategies. He also held various positions in the alternative asset management industry, including Coast Investment Management, a $7 billion fund of hedge funds. His roles included global product specialist and hedge fund analyst, focused on fixed income relative value strategies. Earlier in his career he was a U.S. Treasuries market maker and arbitrageur at major Wall Street firms, including Bank of America and UBS.

Stephen attended the University of Washington, where he graduated with a BA in economics. He is currently registered with FINRA with a Series 7 and 66.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

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Danan Kirby is a portfolio specialist for Thornburg Investment Management. He works with Thornburg’s investment team and serves as a liaison for the team and key investment decision makers, communicating process and results of the firm’s investment strategies. Danan joined Thornburg in 2016.

Prior to Thornburg, Danan served as portfolio manager for the Strategic Growth Bancorp family of banks, managing various strategies for institutions and individual investors. Before that, he was a financial institution specialist with the FDIC. He is also a veteran of the U.S. Army. Danan graduated summa cum laude from the University of New Mexico’s Anderson School of Management with a BBA, concentrating in finance.

Stephen Jimenez is a client portfolio manager for Thornburg Investment Management. He focuses on Thornburg’s liquid alternative strategy and serves as a liaison between the investment team and clients.

Prior to joining Thornburg, Stephen was a salesperson at III Capital Management, a $4 billion hedge fund management company focused on rates and credit strategies. He also held various positions in the alternative asset management industry, including Coast Investment Management, a $7 billion fund of hedge funds. His roles included global product specialist and hedge fund analyst, focused on fixed income relative value strategies. Earlier in his career he was a U.S. Treasuries market maker and arbitrageur at major Wall Street firms, including Bank of America and UBS.

Stephen attended the University of Washington, where he graduated with a BA in economics. He is currently registered with FINRA with a Series 7 and 66.

Charles Roth is global markets editor for Thornburg Investment Management. Prior to joining Thornburg in 2013, Charles was an assistant managing editor at Dow Jones Newswires, the Wall Street Journal’s real-time financial news and analysis division, where he oversaw its bureaus in Latin America as well as the New York–based emerging markets group. He had previously served as a senior writer in the emerging markets group, bureau chief in Venezuela, and staff reporter in Malaysia.

Charles earned BA degrees from the University of Colorado at Boulder and an MA from the Instituto Universitario de Desarrollo y Cooperación at the Universidad Complutense in Madrid, Spain. He was a Peace Corps volunteer in Mali.

Charlie Wilson is portfolio manager for Thornburg Investment Management. He joined the firm in 2012 as ­associate portfolio ­manager and was promoted to portfolio manager in 2014.

Charlie earned a BS in geology from the University of Arizona in Tucson and a PhD in geophysics from the University of Colorado in Boulder. Prior to joining Thornburg, Charlie served as co-portfolio manager for Marsico Capital Management in Denver, Colorado. He was responsible for portfolio investments across multiple strategies and geographies, with specialization in materials, energy, technology, and payments sectors.

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